THE CONSUMER IS IN GOOD SHAPE ACCORDING TO DARDEN
Darden’s management recently provided some insightful economic commentary & reported: a spending shift from durable household goods to leisure services, benefitting the restaurant industry; the high-end consumer is doing well & while <$50k consumers have been a little soft over the last 6 months, Darden’s mix from this demo is still above pre-covid levels; and as the <$50,000 demo includes singles & retirees living in multigenerational households, lower-income consumers are in better shape than they appear.
While a weak GDP outlook weighs on economic prospects, the labor market remains relatively healthy as measured by a strong unemployment rate strengthened by low initial claims. All the same, we see declining hours as employers cut back which means less going forward spending power for the lower-income demo.
2023 SHOULD BE BETTER FOR RESTAURANT STOCKS
2022 was a bad year for QSR stocks as we can see from the table below. All the stocks declined during the year (except for a +7% increase for Restaurant Brands International), with a median decline of -26%. In any case, analyst estimates for 2023 look bullish with expectations for high-single-digit top-line and double-digit bottom-line growth.
FSR stocks performed slightly better than the QSR group during 2022, reflecting the tail wind of a return to dine-in. Analysts are also bullish in their estimates for the sit-down names.